The figures also cast doubt on whether the recent signs that the economy may be improving can be sustained this year.

However, the British Retail Consortium has challenged the ONS's figures as overly pessimistic.

"These ONS sales figures paint a more pessimistic picture than we would have expected," said Richard Lim, BRC economist. "ONS's figure of 2.6% for annual growth in sales values is less than half the 6% result in our own retail sales monitor, published last week. It's also at odds with a spate of company trading results since Christmas that show December sales well up on the previous year – with some retailers even recording double digit growth."

Sales grew in volume terms by just 0.3% in December, according to the ONS, which was far less than the 1.1% rise which analysts had expected and the weakest for the month of December since 2007. Year on year, it was the weakest December for more than a decade, with sales volumes up just 2.1%. That is the lowest annual growth in December since 1998.

But the rise in prices forced through by retailers meant that in terms of value, retail sales rose 3.6% in December year-on-year – the second highest for the month since 2001. Retailers raised their prices in December at the fastest rate since the early spring. Higher prices came after six months of declines as shops tried desperately to tempt consumers to step in, putting aside their concerns about job security, amid the turbulence of the economic downturn.

The ONS figures showed that sales were particularly strong in the nation's supermarkets with the value of sales in food stores 4.9% higher than a year earlier, while spending in nonfood stores was up 1.6%. By volume, food stores posted a 2.8% gain while among nonfood store sales volumes were up just 0.7%.

Sales volumes at department stores fell 1% on the month, while off-store sales, that include mail order purchases, rose by 2.8%. The department stores figure is a surprise as earlier this month House of Fraser revealed record seasonal trading while John Lewis too had a record Christmas. Debenhams, however, reported flat like-for-like sales for the 18 weeks to 2 January.

Internet shopping proved to be a bigger draw over the festive season, Online sales accounted for almost 5% of all spending over December, according to the ONS figures.

Internet shoppers spent £5.46bn in December, according to the latest IMRG Capgemini e-Retail Sales Index, up 17% on the previous year. Sales rose by 3.8% compared to November 2009.

The peak week for online Christmas shopping was the second week in December, a week later than normal. The delay was due in part to cash-strapped shoppers holding off buying their gifts, seeking last minute bargains, and the effect of November's postal strike. Sales of accessories, gifts, electrical kit and health and beauty products saw a particularly marked growth online compared to last Christmas.

Over the year as a whole the IMRG Capgemini e-Retail Sales Index showed average growth of 14% year on year, with 7.6% growth in September the low point.

"An interesting shift during this festive period is the strength of the month on month performance for multi-channel retailers (up 13%) versus their pure-play competitors (down 8%)," said Jon Parry, principal retail consultant at Capgemini. "This shows the high value consumers place on a multi-channel proposition, particularly when it comes to gift returns, and the trust advantage our high street brands have if they can get their online proposition right."

James Roper, chief executive of IMRG added that "2010 looks set to produce another year of strong results for e-retail, with demand expected to remain high as consumers habitually look online for best buys, and a pipeline of significant improvements emerge, including wider product range availability, even better websites and a greater choice of convenient and more reliable delivery options."